By Mark Galeotti of the Czech Institute of International RelationsDecember 7, 2016

When in August Russian President Vladimir Putin unexpectedly sacked Sergei Ivanov, head of the Presidential Administration, and thus, in effect, his even-more-prime minister, the expectation was that his rather more low-key successor, Anton Vaino, would bring about some restructuring of this ‘government-within-a-government’. His first move, reforming regional management, is equally undramatic in form, but addresses what may prove to be the most important real challenge facing the regime in the coming years.

The way its Directorate for Domestic Politics (or UVP in Russian) works with the regions and above all regional governors is being streamlined by Sergei Kiriyenko, the new first deputy head of the Presidential Administration who will be its chief domestic political overseer.

Governing the governors

One of its key activities has been to monitor gubernatorial performance across a wide range of sometimes-ridiculous indices. This is now being pared down to just three, one of which is level of public confidence, as monitored by the security agencies. The role of the spooks might sound unexpected, but reflects the way the Putin regime not only relies on them for information on all aspects of the government machine, making them sometimes auditors and newsreaders as much as political police, but has also given them a specific charge with watching for, and forestalling regional grassroots unrest.

Thus, the Federal Protection Service (FSO) is not just the Praetorian Guard protecting Putin and the Kremlin, it also plays a role on a special committee within the Presidential Administration rating regional stability as green, amber, or red, and coming up with measures, typically involving targeted local spending, to address the latter before protests arise. Likewise, the Federal Security Service (FSB) contracts opinion polls and the National Guard files reports on the mood on the streets, as discerned by its men (and, by implication, how often they get called out to break heads or face down crowds).

In any case, this particular move highlights two issues. The first is the extent to which the role of the governors – generally elected, but through heavily stage-managed processes – is increasingly to keep their regions quiet and loyal. Economic development, once central to their mission (and still one of the three performance indices), is a plus, but arguably primarily insofar as it contributes to local satisfaction. This is also visible in the trend towards the elevation of veterans of the security services, such as the FSO’s Evgeny Zinichev (briefly governor of Kaliningrad before returning to the FSB), Alexei Dyumin (Tula) and FSB’s Dmitri Mironov (Yaroslavl).

The essence of Putin’s security approach is, after all, whenever possible to pre-empt trouble rather than respond to it (this is very much an inheritance from former KGB chief Yuri Andropov, one of Putin’s idols). The governors are in the front line of monitoring local sentiment and addressing potential flash issues, meaning that in some ways they could almost be considered part of the security apparatus these days, charged with keeping the tsar’s peace.

But the second key issue is the extent to which Kiriyenko’s reforms suggest that he may understand how the regions could be the Kremlin’s number one problem in the future.

Most of Russia’s 85 constituent regions are in deficit and, according to Communist leader Gennady Zyuganov, just over half (43) are on the verge of bankruptcy. Some 300 regional ‘monocities’ dependent on a single industry face special challenges, and increasingly procurement (not least in defence) is being driven by the need to keep them afloat. A lack of regional economic and educational opportunity is also a key driver behind radicalisation and violence in the North Caucasus.

The tax system is based on regional tribute flowing to the centre and then redistributed as it sees fit. The draft 2017 budget envisages an extra RUB100bn ($1.57bn) going on regional budgetary support. Dagestan is meant to receive the most, RUB52.4bn ($822mn), with Kamchatka and Sakha also doing very well. However, this does not tell the whole truth of the matter, and while these impoverished regions will indeed receive help, a combination of capital funding projects and other subventions, as well as differential needs, ensure that certain other regions historically have done well, and will continue to do so.

Three regions have been especially well-served by the federal budget in the past: predictably enough, they are Moscow, Leningrad and Chechnya. Now two more are added to the list: Crimea and the ‘unspoken oblast’ of Ukraine’s breakaway Donbas region, which is having to be subsidised by default. There had been some vain hopes in Moscow that Chechnya’s massive and heavily-misappropriated subsidies could be pared (they account for 80% of the region’s budget and all its millionaires), but its leader Ramzan Kadyrov’s public fury at this “unacceptable” proposal forced the predictable Kremlin climb-down.

As a result, Chechnya will get RUB41bn ($643mn). Although there may be some attempt to fudge the issue through transferring ownership of the Chechenneftekhimprom oil company to Grozny, it reflects a pattern whereby despite promises of cuts, subsidies have actually risen thanks to Kadyrov’s antics. In the first half of 2016, the regions as a whole received 12% less subsidy, for example, while Chechnya received 14% more.

At a time when tax receipts are anyway under pressure (one reason for Putin’s emphasis on it in his State of the Federation speech last week), that means less and less for the other regions – and a harder job for the governors.

So restructuring the Directorate for Domestic Politics marks an awareness of the scale of the problem. But for all the enthusiasm for grading governors, without giving them more money, the scope to try new ideas, and a reinvigorated political mandate, this is as meaningful as critiquing the musical talent of the band on the Titanic.

The chances currently look slim that Uzbekistan will offer a hefty payout on an early investment.

Russian state-owned Gazprom has suffered a dramatic defeat at the Stockholm arbitration court to Ukrainian national gas company Naftogaz and owes billions of dollars in fines. Its response? To start a gas war and blackmail Europe.

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